Thursday, June 08, 2006

How much money gets to the ground?

There has been much discussion of the effectiveness of aid and philanthropy recently.

You can think about this issue in two ways - efficiency and effectiveness.

Efficiency is how much of the money gets to the actual project. Here are some thoughts on efficiency:

Before I left the World Bank, I did an informal survey of my colleagues, and the consensus was that about 25% of the money gets to the actual grassroots on average. The rest is taken up through the costs incurred by various layers that the money goes through, including the central government, provincial government, local government, etc. Note that these costs do not imply corruption, just the costs of reviews, planning, salaries, etc.

This may sound bad, but it is actually par for the course. Many people do not realize that, according to the Chronicle of Philanthropy, the cost of fundraising via direct mail or telephone solicitations averages about 50-66% of the total raised, leaving. Some organizations do much better than this, but many also do worse! Small organizations have particularly high fundraising costs because of the high fixed costs of direct mailing and telephone campaigns.

We have taken on a huge challenge at GlobalGiving. We are committed to charging only a 10% facilitation fee. When you add in certain bank charges, this means that we can usually get 85% to 90% of the money to the ground.

Effectiveness is how well the project helps people once it is implemented. Even if you get 100% of the money to the ground, the project is not effective if it is poorly designed. Here is a posting that discusses effectiveness of design.

Previously, Dennis was an economist at the World Bank (1986-2000), where he lived and/or worked for many years in Indonesia and Russia. His team there also created the Innovation Marketplace in 1998 and the Development Marketplace in early 2000. In 1984-85, Dennis worked for the Asian Development Bank and USAID in the Philippines, where he was an extra in one of Chuck Norris's best movies, "Missing in Action" (1984).

In his formative years, Dennis was a short-order cook and busboy at several restaurants, including the late Oasis Restaurant in Leitchfield, KY and the late Porthole Restaurant in Chapel Hill, NC.